It's been a bit slow around here so figured I might post some research I've done recently on A2's MBS presence. This is a pretty long post and probably only useful for anyone interested in more detail on A2's geographic penetration in China. Go ahead & skip / ignore if that's not you. This was partly just a exercise for me to practice some analytic skills and I do not guarantee it is free from error - as always DYOR!
Background One of the main drivers of potential growth for A2 is China label infant formula sold offline in physical Mother and Baby stores (MBS) in China. A2 says it is 'under-indexed' in lower-tier Chinese cities & that some growth can come from just expanding the store footprint in those cities.
For reference, A2 has around 7.1% value market share in Key&A cities (i.e. the top tier cities), versus just 2.2% in lower tier BCD cities, hence where they see the opportunity to increase this. BCD cities also account for 81% of the overall IMF market whereas it only accounts for 61% of A2's China label sales.
What do we know about A2's footprint from official info? In the 1H22 presentation A2 reported that it has 24.6k stores with active sales in the past 6 months. There hasn't been much data given on the composition of cities / provinces other than this figure which suggests that they are already heavily weighted towards BCD (lower-tier) cities over top tier 'Key&A' cities. To me it looks about 20% Key&A vs. 80% BCD roughly. But it's also worth noting that there are at least 100k+ MBS stores in China (and it could be much higher). So clearly there is a lot further to go, and it's not even very clear how many stores A2 has in each of the lower level tiers e.g. B vs. C. vs. D etc.
Scraping the A2 China Website Another "official' source is the A2 China website (https://www.a2nutrition.cn/find) which lists 34.6k stores in its official stockist directory. This higher count is likely due to two main reasons: 1) it has stores added too recently to have enough sales data to report on in 1H22; 2) it also has some stores that have been deactivated due to poor sales but not removed yet. I have noticed stores do get culled occasionally but there is probably a lag here too. There may also be some duplication or inaccurate records for other reasons.
It's impossible to go through thousands of pages of stores manually but fortunately these days there are ways to automate this through web scraping. I scraped all the data into a large spreadsheet containing addresses etc. of all 34.6k stores and play around with this a bit. The records are listed chronologically going all the way from 2015 right up to January 2022 which is when the most recent stores were added.
City Tier Breakdown There are 613 cities in China, and a2 appears to have at least a 1 store in around half of them. They even have some stock sitting on a shelf in a few very far flung prefectures in places like Tibet, Mongolia, Xinjiang. I categorised the cities that A2 has stores in using a recent 4 tier classification published by South China Morning Post (https://multimedia.scmp.com/2016/cities/). I think what A2 calls Key&A probably refers to the five 'Tier 1' cities + a few 'key' Tier 2 cities. I was a bit surprised at how heavily weighted Tier 3 and 4 cities were already (accounting for 61% of stores), but it also goes to show just how vast the market is when this represents only a fraction of all the stores that exist in those cities.
Province breakdown The directory also contains a province column making it easy to organise the data based on this as well, to see the which provinces feature most prominently. In Strategy day, A2 noted that it's share varied quite markedly by province, and that there were certain provinces where they had performed particularly well, which they would seek to emulate. Based on the data, my guess is that these are provinces like Guangdong, Jiangsu & Sichuan - 3 provinces out of 31 in total, but they account for 30% of stores. A2 has stores in all 31 provinces.
Top 10 Cities
Lastly, I separated out the top 10 cities by store count. These 10 cities account for 21% of all stores A2 is stocked in. I was expecting to see mostly tier 1 cities where A2 has had a longer presence, but this wasn't the case. One of the highest ranked cities is Dongguan (a tier 3 city in Guangdong province). Foshan is another Tier 3 city, also in Guangdong. The list supports my theory that A2 has cracked the formula (pardon the pun) in Guangdong province, successfully penetrating into the Tier 3 market there, and that this is what they will look to emulate elsewhere.
A2 MBS Store Count - Top 10 Cities
City
n
% of total stores
tier
Chongqing
1,015
2.93%
1
Chengdu
1007
2.90%
2
Suzhou City
717
2.07%
2
Dongguan city
717
2.07%
3
Shanghai
697
2.01%
1
Guangzhou City
686
1.98%
1
Shenzhen
613
1.77%
2
Foshan City
600
1.73%
3
Xi'an
552
1.59%
2
Beijing
540
1.56%
1
Other thoughts/takeawaysOne thing I noticed more generally was how uneven the rollout looks across city tiers, with some relatively small cities having particularly disproportionate store presence that - to me - could really only be explained by a stronger market acceptance in those areas. As a case in point, Fuzhou is a tier 4 city, but it was #29 in terms of store count (with almost 300 stores - not far off a Tier 1 city Tianjin which has 378 stores). As well as many other examples like this, I saw lots of cities that are toward the very upper end of their tier 2 & 3 but where A2 was considerably underrepresented. So on the one hand the data points to some stand-out success stories, but also some areas where they are yet to crack.
(20min delay)